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Fitch Solutions sees higher gold prices but momentum won't last in 2022

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(Kitco News) - The gold market is in a holding pattern within striking distance of $1,900 an ounce, and one firm sees the potential for higher prices, but the momentum might not last through the end of the year.

In an updated gold report published Wednesday, analysts at Fitch Solutions said that they remain bullish on gold for this year but added that the precious metal could struggle in 2022 as inflation pressures start to wane.

"We expect further gains (to gold) in the coming months amidst rising inflation pressuring U.S. treasury real yields, a weak U.S. dollar, and renewed waves of COVID-19 infections," the analysts said in the report.

Although the firm remains bullish on gold, the analysts said that they were not updating their average price forecasts for this year.

"For now, we maintain our 2021 gold price forecast of USD1,780 per oz, with prices having averaged USD1,804 per ounce year to date and hovering around USD1,900 per oz," the analysts said.

The analysts said that gold's record highs above $2,000 an ounce, hit last year, could prove to be significant resistance this year.

Next year, Fitch Solutions is not an optimist on gold as they see prices averaging the year around $1,700 an ounce.

"We maintain our 2022 gold price forecast of USD1,700 per oz as we believe prices will start to decisively weaken towards the later part of 2021 and into 2022," the analysts said.

Rising bond yields and shifting monetary policies will prove to be significant headwinds, the analysts said.

"The main headwind denting gold's appeal in 2022 and beyond will be easing of inflationary pressures as well as normalization of monetary policy, including the slowing momentum of central banks' balance-sheet buying."

Not only does tightening monetary policy pose a threat to gold prices, but Fitch said that cryptocurrencies would also compete against gold for investment capital. They added that cryptocurrencies have become more attractive to younger investors.

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